Hold Nestle India; target of Rs 4605: R K Global

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Hold Nestle India; target of Rs 4605: R K Global

R K Global has recommended hold rating on Nestle India with a target of Rs 4605, in its December 1, 2011 research report.

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R K Global has recommended hold rating on Nestle India with a target of Rs 4605, in its December 1, 2011 research report.

"Nestle India's Q3CY'11 revenue jumped ~20% YoY to Rs 19,692 mn (lower by ~5% from our estimate of Rs 20,629). While, the company's EBIDTA & PAT also fell by ~6% and ~13% from our estimates. The falling numbers was adversely impacted by ban on milk powder exports The company's revenue increased ~20% YoY on very strong domestic sales. Nestle reported robust sales spurt of ~20% YoY to Rs 19,692 mn led by strong domestic sales growth of ~21% to Rs 1,870 mn. We expect volume growth to pick up due to commissioning of new plants. Other Consumer cos, on a smaller base, reported flat growth in the FMCG noodles category while Nestle reported extremely strong growth. The exposure of forward sale contract of USD46 mn resulted in a negative M2M impact of Rs 153.3 mn, which the company has capitalized in the Q."

"Nestle India's Q3CY'11 revenue jumped ~20% YoY to Rs 19,692 mn (lower by ~5% from our estimate of Rs 20,629). While, the company's EBIDTA & PAT also fell by ~6% and ~13% from our estimates. The falling numbers was adversely impacted by ban on milk powder exports  The company's revenue increased ~20% YoY on very strong domestic sales. Nestle reported robust sales spurt of ~20% YoY to Rs 19,692 mn led by strong domestic sales growth of ~21% to Rs 1,870 mn. We expect volume growth to pick up due to commissioning of new plants. Other Consumer cos, on a smaller base, reported flat growth in the FMCG noodles category while Nestle reported extremely strong growth. The exposure of forward sale contract of USD46 mn resulted in a negative M2M impact of Rs 153.3 mn, which the company has capitalized in the Q."

"Nestle is increasingly focusing to expand into tier II and tier III cities by introducing SKUs below @Rs 9.5. Also, high pricing power on account of strong brand equity is expected to aid in fighting margin pressure despite inflationary concern in the long-term. However, in the short-term the company might experience some margin pressure. At CMP, the stock trades at P/E and P/BV of ~34.5X & ~16.7x of CY'12E EPS of Rs 122 and BVPS of Rs 251. Thereby, we initiate a HOLD rating on the Nestle India stock, with a TP of Rs 4,605 over 12M period (with a potential upside of ~8.6% from the current levels), factored over a P/E of ~37.7x and P/BV of ~18.3x, using CY'12E EPS of Rs 122 and a BVPS of Rs 251," says R K Global research report. 

Institutional holding more than 40% in Indian cos

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